<PAGE>
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-10702
Terex Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1531521
(State of Incorporation) (IRS Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices)
(203) 222-7170
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [ X ] NO [ ]
Number of outstanding shares of common stock: 20.7 million as of April 30, 1998.
The Exhibit Index appears on page 17.
<PAGE>
2
INDEX
TEREX CORPORATION AND SUBSIDIARIES
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
TEREX CORPORATION
Condensed Consolidated Statement of Operations --
Three months ended March 31, 1998 and 1997................3
Condensed Consolidated Balance Sheet --
March 31, 1998 and December 31, 1997......................4
Condensed Consolidated Statement of Cash Flows --
Three months ended March 31, 1998 and 1997................5
Notes to Condensed Consolidated Financial Statements --
March 31, 1998............................................6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................10
PART II OTHER INFORMATION
Item 1 Legal Proceedings................................................15
Item 2 Changes in Securities and Use of Proceeds........................15
Item 3 Defaults Upon Senior Securities..................................15
Item 4 Submission of Matters to a Vote of Security Holders..............15
Item 5 Other Information................................................15
Item 6 Exhibits and Reports on Form 8-K.................................15
SIGNATURES.................................................................16
<PAGE>
3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net sales.......................................................$ 260.6 $ 176.3
Cost of goods sold.............................................. 215.8 148.8
------------- -------------
Gross profit............................................... 44.8 27.5
Engineering, selling and administrative expenses................ 21.0 14.1
------------- -------------
Income from operations..................................... 23.8 13.4
Other income (expense):
Interest income............................................ 0.1 0.6
Interest expense........................................... (8.8) (9.5)
Other income (expense) - net............................... (0.5) (0.4)
------------- -------------
Income before income taxes and extraordinary items.............. 14.6 4.1
Provision for income taxes...................................... (0.2) (0.2)
------------- -------------
Income before extraordinary items............................... 14.4 3.9
Extraordinary loss on retirement of debt........................ (38.3) ---
------------- -------------
Net income (loss)............................................... (23.9) 3.9
Less preferred stock accretion.................................. --- (0.4)
------------- -------------
Income (loss) applicable to common stock........................$ (23.9) $ 3.5
============= =============
PER COMMON AND COMMON EQUIVALENT SHARE:
Basic
Income before extraordinary items.........................$ 0.70 $ 0.26
Extraordinary loss on retirement of debt.................. (1.86) ---
------------- -------------
Net income (loss).......................................$ (1.16) $ 0.26
============= =============
Diluted
Income before extraordinary items.........................$ 0.65 $ 0.24
Extraordinary loss on retirement of debt.................. (1.73) ---
------------- -------------
Net income (loss).......................................$ (1.08) $ 0.24
============= =============
Weighted average number of common and common equivalent
shares outstanding in per share calculation (See Exhibit 11.1)
Basic................................................... 20.6 13.3
Diluted................................................. 22.2 14.4
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
4
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
March 31, December 31
------------- --------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents..........................................$ 58.5 $ 28.7
Trade receivables (net of allowance of $4.3
at March 31, 1998 and $4.5 at December 31, 1997)................. 212.5 139.3
Net inventories.................................................... 380.9 232.1
Other current assets............................................... 23.7 26.4
------------- --------------
Total current assets........................................... 675.6 426.5
Long-term assets
Property, plant and equipment - net................................ 76.7 47.8
Goodwill - net..................................................... 147.5 88.4
Other assets - net................................................. 32.3 25.8
------------- --------------
Total assets $ 932.1 $ 588.5
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt................$ 19.3 $ 26.6
Trade accounts payable............................................. 191.2 138.1
Accrued compensation and benefits.................................. 18.7 16.4
Accrued warranties and product liability........................... 26.1 25.3
Other current liabilities.......................................... 70.2 29.7
------------- --------------
Total current liabilities...................................... 325.5 236.1
Non current liabilities
Long-term debt, less current portion............................... 554.2 273.5
Other.............................................................. 23.8 18.7
Minority interest....................................................... 0.6 0.6
Commitments and contingencies
Stockholders' equity
Warrants to purchase common stock.................................. 0.8 0.8
Equity rights...................................................... 3.2 3.2
Common stock, $.01 par value - authorized 30.0 shares;
issued and outstanding 20.6 at March 31, 1998 and
20.5 at December 31, 1997....................................... 0.2 0.2
Additional paid-in capital......................................... 179.0 178.7
Accumulated deficit................................................ (139.3) (115.4)
Pension liability adjustment....................................... (1.8) (1.8)
Cumulative translation adjustment.................................. (14.1) (6.1)
------------- --------------
Total stockholders' equity..................................... 28.0 59.6
------------- --------------
Total liabilities and stockholders' equity..............................$ 932.1 $ 588.5
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
5
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss)..................................................$ (23.9) $ 3.9
Adjustments to reconcile net income to cash used
in operating activities:
Depreciation.................................................. 2.4 1.6
Amortization.................................................. 1.5 1.4
Extraordinary loss on retirement of debt...................... 38.3 ---
Other, net.................................................... (0.2) (0.2)
Changes in operating assets and liabilities
(net of effects of acquisitions):
Trade receivables......................................... (32.3) 0.7
Net inventories........................................... (16.2) 1.0
Trade accounts payable.................................... 26.1 (1.4)
Accrued compensation and benefits......................... 2.3 (0.9)
Other, net................................................ (9.6) 8.9
----------- ----------
Net cash provided by (used in) operating activities..... (11.6) 15.0
----------- ----------
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired.................... (172.9) ---
Capital expenditures............................................... (2.5) (0.8)
Proceeds from sale of excess assets................................ 1.9 0.3
Other.............................................................. --- 0.1
----------- ----------
Net cash provided by (used in) investing activities...... (173.5) (0.4)
----------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of issuance
costs............................................................ 508.6 ---
Redemption of preferred stock...................................... --- (45.4)
Principal repayments of long-term debt............................. (167.7) ---
Net incremental borrowings under revolving line of
credit agreements................................................ (100.8) 3.8
Payment of premiums on early extinguishment of debt................ (29.0) ---
Other.............................................................. 2.6 (1.5)
----------- ----------
Net cash provided by (used in) financing activities...... 213.7 (43.1)
----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.......................................... 1.2 3.9
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................................... 29.8 (32.4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 28.7 72.0
=========== ==========
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................$ 58.5 $ 39.6
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
6
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(in millions, unless otherwise noted)
NOTE A -- BASIS OF PRESENTATION
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Terex Corporation and subsidiaries as of March 31, 1998
and for the three months ended March 31, 1998 and 1997 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles to be included in full year
financial statements. The accompanying condensed consolidated balance sheet as
of December 31, 1997, has been derived from the audited consolidated balance
sheet as of that date.
The condensed consolidated financial statements include the accounts of Terex
Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All
material intercompany balances, transactions and profits have been eliminated.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been made. Such adjustments consist only of those of a normal
recurring nature. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires disclosure of total non-shareowner changes in equity in interim
periods and additional disclosures of the components of non-shareowner changes
in equity on an annual basis. Total non-shareowner changes in equity include all
changes in equity during a period except those resulting from investments by,
and distributions to, shareowners. The specific components include: net income,
deferred gains and losses resulting from foreign currency translation and
minimum pension liability adjustments. For the quarters ended March 31, 1998 and
March 31, 1997, total non-shareowner changes in equity were ($31.9) and ($2.0),
respectively.
NOTE B -- ACQUISITIONS
On January 5, 1998, the Company completed the purchase of Payhauler Corp.
("Payhauler"). Payhauler manufactures four-wheel drive off-highway trucks. The
operating results of Payhauler are included in the Company's consolidated
results of operations since January 5, 1998.
On March 31, 1998, the Company purchased all of the outstanding shares of O&K
Mining GmbH ("O&K Mining") from O&K Orenstein & Koppel AG ("Orenstein & Koppel")
for net aggregate consideration of approximately $168, subject to certain
post-closing adjustments. The transaction was financed through the issuance of
the Company's New Senior Subordinated Notes (as defined below) and borrowings
under the Company's New Bank Credit Facility (as defined below). O&K Mining,
which will be part of the Terex Earthmoving segment, is headquartered in
Dortmund, Germany, and has operations in the United States, the United Kingdom,
Australia, Canada, South Africa and Singapore. O&K Mining markets a complete
range of large hydraulic mining shovels serving the global surface mining
industry and the global construction and infrastructure development markets.
On March 6, 1998, the Company redeemed or defeased all of its $166.7 principal
amount of its then outstanding 13-1/4% Senior Secured Notes due 2002 (the
"Senior Secured Notes"). Concurrently therewith, the Company also refinanced
substantially all of its then existing domestic and foreign revolving credit
debt. The proceeds for the offer to purchase and the repayment of its then
existing revolving credit facility were obtained from borrowings under the
Company's new $500.0 global bank credit facility (the "New Bank Credit
Facility"). In connection with the refinancing of the Company's then existing
credit facility and the repurchase of the Senior Secured Notes, the Company
incurred extraordinary losses of $1.9 and $36.4, respectively. These
extraordinary losses have been recorded in the first quarter of 1998.
<PAGE>
7
The New Bank Credit Facility consists of a new secured global revolving credit
facility aggregating up to $125.0 million (the "New Revolving Credit Facility")
and two term loan facilities (collectively, the "Term Loan Facilities")
providing for loans in an aggregate principal amount of up to approximately
$375.0 million. The New Revolving Credit Facility will be used for working
capital and general corporate purposes, including acquisitions. With limited
exceptions, the obligations of the Borrowers under the New Bank Credit Facility
are secured by (i) a pledge of all of the capital stock of domestic subsidiaries
of the Company, (ii) a pledge of 65% of the stock of the foreign subsidiaries of
the Company and (iii) a first priority security interest in, and mortgages on,
substantially all of the assets of Terex and its domestic subsidiaries. The New
Bank Credit Facility contains covenants limiting the Borrowers' activities,
including, without limitation, limitations on dividends and other payments,
liens, investments, incurrence of indebtedness, mergers and asset sales, related
party transactions and capital expenditures. The New Bank Credit Facility also
contains certain financial and operating covenants, including a maximum leverage
ratio, a minimum interest coverage ratio and a minimum fixed charge coverage
ratio.
Pursuant to the Term Loan Facilities, the Borrowers have borrowed (i) $175.0 in
aggregate principal amount pursuant to a Term Loan A due March 2004 (the "Term A
Loan") and (ii) $200.0 in aggregate principal amount pursuant to a Term Loan B
due March 2005 (the "Term B Loan"). The outstanding principal amount of the Term
A Loan currently bears interest, at the applicable Borrower's option, at an
all-in drawn cost of 2.00% per annum in excess of the adjusted eurodollar rate
or, with respect to U.S. dollar denominated alternate based rate loans, at an
all-in drawn cost of 1.00% per annum in excess of the prime rate. The
outstanding principal amount of the Term B Loan currently bears interest, at the
Company's option, at a rate of 2.50% per annum in excess of the adjusted
eurodollar rate or, with respect to U.S. Dollar denominated alternate base rate
loans, 1.50% in excess of the prime rate. The Term A Loan amortizes on a
quarterly basis, in the annual percentages of 0%, 16%, 16%, 21%, 21% and 26%,
respectively, during the six-year term of the loan. The Term B Loan amortizes in
an annual percentage of 1% during each of the first six years of the term of the
loan and 94% in the seventh year of the term of the loan. The Term A Loan and
Term B Loan are subject to mandatory prepayment in certain circumstances and are
voluntarily prepayable without payment of a premium (subject to reimbursement of
the lenders' costs in case of prepayment of eurodollar loans other than on the
last day of an interest period.)
Pursuant to the New Revolving Credit Facility, the Borrowers have available an
aggregate amount of up to $125.0. The outstanding principal amount of loans
under the New Revolving Credit Facility bears interest, at the applicable
Borrower's option, at an all-in drawn cost of 2.00% per annum in excess of the
adjusted eurocurrency rate or, with respect to U.S. dollar denominated alternate
base rate loans, at an all-in drawn cost of 1.00% per annum in excess of the
prime rate. The New Revolving Credit Facility will terminate on the sixth
anniversary thereof.
On March 31, 1998, the Company issued and sold $150.0 aggregate principal amount
of 8-7/8% Senior Subordinated Notes due 2008 (the "New Senior Subordinated
Notes"). The New Senior Subordinated Notes were issued in a private placement
made in reliance upon an exemption from registration under the Securities Act of
1933, as amended. The net proceeds from the offering were used to fund a portion
of the aggregate consideration of the acquisition of O&K Mining and for general
working capital purposes.
The O&K Mining and Payhauler (the "Acquired Businesses") acquisitions are being
accounted for using the purchase method, with the purchase price allocated to
the assets acquired and the liabilities assumed based upon their respective
estimated fair values at the date of acquisition. The excess of purchase price
over the net assets acquired (approximately $54.2) is being amortized on a
straight-line basis over 40 years.
The estimated fair values of assets and liabilities acquired in the O&K Mining
and Payhauler acquisitions are summarized as follows:
Cash.................................................$ 3.3
Accounts receivable.................................. 38.5
Inventories.......................................... 135.3
Other current assets................................. 9.0
Property, plant and equipment........................ 28.6
Goodwill............................................. 54.2
Other assets......................................... 4.0
Accounts payable and other current liabilities....... (78.9)
Other non-current liabilities........................ (17.2)
===============
$ 176.8
===============
The Company is in the process of completing evaluations and estimates for
purposes of determining certain values. The Company has also estimated costs
related to plans to integrate the activities of the Acquired Businesses into the
Company, including plans to exit certain activities and consolidate and
restructure certain functions. The Company may revise the estimates as
additional information is obtained.
<PAGE>
8
NOTE C -- INVENTORIES
Net inventories consist of the following:
March 31, December 31,
1998 1997
----------------- ----------------
Finished equipment.......................$ 102.2 $ 54.1
Replacement parts........................ 142.3 82.8
Work-in-process.......................... 45.9 22.4
Raw materials and supplies............... 90.5 72.8
----------------- ----------------
Net inventories..........................$ 380.9 $ 232.1
================= ================
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment consists of the following:
March 31, December 31,
1998 1997
----------------- ----------------
Property, plant and equipment.............$ 111.9 $ 83.0
Less: Accumulated depreciation........... (35.2) (35.2)
================= ================
Net property, plant and equipment.........$ 76.7 $ 47.8
================= ================
NOTE E -- LITIGATION AND CONTINGENCIES
The Company is subject to a number of contingencies and uncertainties including
product liability claims, self-insurance obligations, tax examinations and
guarantees. Many of the exposures are unasserted or proceedings are at a
preliminary stage, and it is not presently possible to estimate the amount or
timing of any cost to the Company. However, management does not believe that
these contingencies and uncertainties will, in the aggregate, have a material
adverse effect on the Company. When it is probable that a loss has been incurred
and possible to make reasonable estimates of the Company's liability with
respect to such matters, a provision is recorded for the amount of such estimate
or for the minimum amount of a range of estimates when it is not possible to
estimate the amount within the range that is most likely to occur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of federal,
state, local and foreign environmental laws and regulations, including the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
that (i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for hazardous and nonhazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws and regulations has, and will, require expenditures by the Company on
a continuing basis.
The Internal Revenue Service (the "IRS") is currently examining the Company's
federal tax returns for the years 1987 through 1989. In December 1994, the
Company received an examination report from the IRS proposing a substantial tax
deficiency. The examination report raised a variety of issues, including the
Company's substantiation for certain deductions taken during this period, the
Company's utilization of certain net operating loss carryovers ("NOLs") and the
availability of such NOLs to offset future taxable income. The Company filed an
administrative appeal to the examination report in April 1995. In June 1996 the
Company was advised that the matter was being referred back to the audit
division of the IRS. The IRS is currently reviewing information provided by the
Company. The ultimate outcome of this matter is subject to the resolution of
significant legal and factual issues. Given the stage of the audit, and the
number and complexity of the legal and administrative proceedings involved in
reaching a resolution of this matter, it is unlikely that the ultimate outcome,
if unfavorable to the Company, will be determined for at least several years. If
the IRS were to prevail on all the issues raised, the amount of the tax
assessment would be approximately $56.0 plus penalties of approximately $12.8
and interest through March 31, 1998 of approximately $98.6. The penalties
asserted by the IRS are calculated as 20% of the amount of the tax assessed for
fiscal year 1987 and 25% of the tax assessed for each of fiscal years 1988 and
1989. Interest on the amount of tax assessed and penalties is currently accruing
at a rate of 10% per annum. The applicable annual rate of interest has
historically varied from 7% to 12%.
<PAGE>
9
If the Company were required to pay a significant portion of the assessment with
related interest and penalties, such payment might exceed the Company's
resources. In such event, the viability of the Company would be placed in
jeopardy, and it is uncertain that the Company could, through financing or
otherwise, obtain the funds required to pay such assessment, interest, and
applicable penalties. Management believes, however, that the Company will be
able to provide adequate documentation for a substantial portion of the
deductions questioned by the IRS and that there is substantial support for the
Company's past and future utilization of the NOLs. Based upon consultation with
its tax advisors, management believes that the Company's position will prevail
on the most significant issues. Accordingly, management believes that the
outcome of the examination will not have a material adverse effect on its
financial condition or results of operations, but may result in some reduction
in the amount of the NOLs available to the Company. No additional accruals have
been made for any amounts which might be due as a result of this matter because
the possible loss ranges from zero to $56.0 plus interest and penalties, and the
ultimate outcome cannot be determined or estimated at this time. No reserves are
being expensed to cover the potential liability.
<PAGE>
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts are in millions, unless otherwise noted.)
Results of Operations
The Company currently operates in two industry segments: Terex Lifting and Terex
Earthmoving.
Three Months Ended March 31, 1998 Compared with the Three Months Ended
March 31, 1997
The table below is a comparison of net sales, gross profit, engineering, selling
and administrative expenses, income from operations, by segment, for the three
months ended March 31, 1998 and 1997.
Three Months Ended
March 31,
------------------------ Increase
1998 1997 (Decrease)
----------- ------------ ------------
NET SALES
Terex Lifting........................$ 182.5 $ 97.1 $ 85.4
Terex Earthmoving.................... 76.6 77.7 (1.1)
General/Corporate/Eliminations....... 1.5 1.5 ---
=========== ============ ============
Total..............................$ 260.6 $ 176.3 $ 84.3
=========== ============ ============
GROSS PROFIT
Terex Lifting........................$ 30.1 $ 14.3 $ 15.8
Terex Earthmoving.................... 14.4 12.8 1.6
General/Corporate/Eliminations....... 0.3 0.4 (0.1)
=========== ============ ============
Total..............................$ 44.8 $ 27.5 $ 17.3
=========== ============ ============
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Terex Lifting........................$ 11.7 $ 6.8 $ 4.9
Terex Earthmoving.................... 7.8 6.4 1.4
General/Corporate/Eliminations....... 1.5 0.9 0.6
=========== ============ ============
Total..............................$ 21.0 $ 14.1 $ 6.9
=========== ============ ============
INCOME FROM OPERATIONS
Terex Lifting........................$ 18.4 $ 7.5 $ 10.9
Terex Earthmoving.................... 6.6 6.4 0.2
General/Corporate/Eliminations....... (1.2) (0.5) (0.7)
=========== ============ ============
Total..............................$ 23.8 $ 13.4 $ 10.4
=========== ============ ============
Net Sales
Sales increased $84.3, or approximately 48%, to $260.6 for the three months
ended March 31, 1998 over the comparable 1997 period, primarily reflecting the
sales of $75.0 at the businesses acquired in 1997 and 1998, and increased sales
of $19.4 for Terex Lifting, excluding acquisitions.
Terex Lifting's sales were $182.5 for the three months ended March 31, 1998, an
increase of $85.4 from $97.1 for the three months ended March 31, 1997. Of the
increase in sales, $66.0 was due to the results of the businesses acquired in
the second quarter of 1997. Excluding the 1997 acquisitions, Terex Lifting's
sales increased $19.4. Terex Lifting's backlog was $224.0 at March 31, 1998,
compared to $101.0 at March 31, 1997 and $186.5 at December 31, 1997. Of the
total backlog at March 31, 1998, approximately 37% was at the businesses
acquired in 1997. The sales mix was approximately 10% parts for the three months
ended March 31, 1998 compared to 16% parts for the comparable 1997 period. The
decrease in parts sales as a percentage of total sales was principally due to
higher machine sales.
<PAGE>
11
Terex Earthmoving's sales decreased $1.1 to $76.6 for the three months ended
March 31, 1998 from $77.7 for the three months ended March 31, 1997. The
decrease in sales was primarily machine sales in the Unit Rig product line and
sales at the Company's U.K. distributor, which decreased $4.2 and $6.8,
respectively, in the three months ended March 31, 1998 as compared with the
comparable 1997 period, offsetting $9.0 of sales at Payhauler, the unit acquired
in January of 1998. Sales in Continental Europe were lower than the comparable
1997 quarter, reflecting continued weakness in the European construction sector
and the effect of the strong U.K. currency on sales from the Terex factory in
Scotland. Excluding the results of Payhauler, machine sales decreased 15.6%, and
parts sales decreased 6.6%. The decline in parts sales was due primarily to
reduced activity at the Hypac business during the consolidation of that business
from California into Unit Rig's Tulsa, Oklahoma facility. Parts sales generally
have higher gross margins than machine sales. The sales mix was approximately
30% parts for the three months ended March 31, 1998 compared to 29% parts for
the comparable 1997 period. Backlog was $48.5 at March 31, 1998 compared to
$30.3 at December 31, 1997 and $69.1 at March 31, 1997. Backlog at Unit Rig at
March 31, 1998 declined by approximately $3.1 and increased by $3.9 as compared
to March 31, 1997 and December 31, 1997, respectively.
Net sales for corporate in the three months ended March 31, 1998 and 1997 are
service revenues of $1.5 generated by Terex's parts distribution center for
services provided to a third party.
Gross Profit
Gross profit for the three months ended March 31, 1998 increased $17.3, or 63%,
to $44.8 as compared to $27.5 for the three months ended March 31, 1997. The
gross profit increased at both Terex Lifting and Terex Earthmoving.
Terex Lifting's gross profit increased $15.8 to $30.1 for the three months ended
March 31, 1998, compared to $14.3 for the three months ended March 31, 1997. The
increase was due to the increase in sales, principally from the businesses
acquired in 1997 and to an increase in gross margin percentage. The gross margin
percentage at Terex Lifting was 16.5% for the three months ended March 31, 1998
versus 14.7% for the comparable 1997 period.
Terex Earthmoving's gross profit increased $1.6 to $14.4 for the three months
ended March 31, 1998 compared to $12.8 for the three months ended March 31,
1997. The increase in gross profit was primarily due to increased manufacturing
efficiencies and an increased share of higher margin TEL machines. The gross
margin percentage at Terex Earthmoving was 18.8% for the three months ended
March 31, 1997 as compared to 16.5% for the three months ended March 31, 1997.
The gross margin percentage increased on TEL products as well as at Unit Rig.
The gross margin percentage increased at Unit Rig during the three months ended
March 31, 1998, as compared to the comparable 1997 period, due to the increase
in parts sales as a percentage of total sales and as a result of cost savings
from the outsourcing of certain manufacturing operations.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $21.0 for the
three months ended March 31, 1998 from $14.1 for the three months ended March
31, 1997, reflecting the effect of the businesses acquired in 1997 and 1998.
Terex Lifting's engineering, selling and administrative expenses as a percentage
of sales decreased to 6.4% for the three months ended March 31, 1998 as compared
to 7.0% for the comparable 1997 period. The engineering, selling and
administrative expenses increased to $11.7 for the three months ended March 31,
1998 from $6.8 for the three months ended March 31, 1997, reflecting expenses at
the businesses acquired in 1997.
Terex Earthmoving's engineering, selling and administrative expenses increased
$1.4 to $7.8 for the three months ended March 31, 1998 as compared to $6.4 for
the same period in 1997. Substantially all the increase relates to the effect of
the acquisition of Payhauler in January of 1998.
Income from Operations
On a consolidated basis, the Company had operating income from continuing
operations of $23.8, or 9.1% of sales, for the three months ended March 31,
1998, compared to operating income of $13.4, or 7.6% of sales, for the three
months ended March 31, 1997, for the reasons mentioned above.
Terex Lifting's income from operations of $18.4 for the three months ended March
31, 1998 increased by $10.9 over the three months ended March 31, 1997,
primarily due to the results of the businesses acquired in 1997, increased
revenues at lifting, excluding acquired companies, and the effect of cost
control initiatives implemented at PPM Europe and Terex Cranes - Conway
Operations and continued strong performance by Terex Cranes - Waverly
Operations.
<PAGE>
12
Terex Earthmoving's income from operations increased by $0.2 to $6.6 for the
three months ended March 31, 1998 from $6.4 for the three months ended March 31,
1997, primarily due to the results of Payhauler acquired in January of 1998 and
improved gross margin percentages at the rest of Earthmoving, which offset the
impact of lower sales. Improved gross margin percentages were seen at Unit Rig
due to a higher proportion of parts sales and outsourcing and other cost
reduction actions.
Other Income (Expense)
During the three months ended March 31, 1998, the Company's interest expense
decreased $0.2 to $8.7 from $8.9 for the comparable 1997 period. This decrease
was primarily due to lower debt levels in the three months ended March 31, 1998
versus the comparable period in 1997. The proceeds from the issuance of the
common stock in July 1997 were used to reduce the average balance borrowed under
the New Credit Facility and then on September 4, 1997 the Company retired $83.3
of the Senior Secured Notes due 2002.
Other income (expense) for the three months ended March 31, 1998 was primarily
amortization of debt issue costs, which was partially offset by the gain on the
sale of excess assets.
Extraordinary Items
The Company recorded a charge of $38.3 in the three months ended March 31, 1998
to recognize a loss on the early extinguishment of debt in connection with the
redemption of its 13-1/4% Senior Secured Notes due 2002 (the "Senior Secured
Notes") and the refinancing of the Company's bank credit facilities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $11.6 was used by operating activities during the three months ended
March 31, 1998. $27.2 was provided by operating results plus depreciation and
amortization, and approximately $22.4 was invested in working capital during the
period primarily to support the increase in business activity at Terex Lifting
and TEL. Net cash used in investing activities was $173.5 during the three
months ended March 31, 1998, primarily related to the purchase of O&K Mining and
Payhauler. Net cash provided by financing activities was $213.7 during the three
months ended March 31, 1998. Cash was provided by the net proceeds from the
issuance of the New Senior Subordinated Notes and additional borrowings from the
New Bank Credit Facility. Cash was used in the redemption or defeasance of the
remainder of the Senior Secured Notes. Cash and cash equivalents totaled $58.5
at March 31, 1998.
Debt reduction and an improved capital structure are major focal points for the
Company. In this regard, the Company regularly reviews its alternatives to
improve its capital structure and to reduce debt service through debt
refinancings, issuance of equity, assets sales, including the sale of business
units, or any combination thereof.
Including the acquisition of O&K Mining, during the past several years the
Company has invested approximately $379 to strengthen its core businesses
through five strategic acquisitions. The Company expects that acquisitions and
new product development will continue to be important components of its growth
strategy and is continually reviewing acquisition opportunities. As with its
previous acquisitions, Terex will continue to pursue strategic acquisitions
which complement the Company's core operations, offer cost reduction
opportunities as well as distribution and purchasing synergies and provide
product diversification.
As discussed in Note B of the notes to the interim condensed consolidated
financial statements, on March 6, 1998 the Company refinanced its then existing
credit facility and redeemed or defeased all of its $166.7 principal amount of
its then outstanding 13-1/4% Senior Secured Notes. The proceeds for the offer to
purchase and the repayment of its then existing revolving credit facility were
obtained from borrowings under the Company's New Bank Credit Facility. In
connection with the refinancing of the Company's then existing credit facility
and the repurchase of the Senior Secured Notes, the Company incurred
extraordinary losses of $1.9 and $36.4, respectively. These extraordinary
charges have been recorded in the first quarter of 1998. The total funds paid at
the redemption were $202.2 ($166.7 principal, $28.7 redemption premium and $6.8
accrued interest).
The New Bank Credit Facility consists of a new secured global revolving credit
facility aggregating up to $125 million (the "New Revolving Credit Facility")
and two term loan facilities (collectively, the "Term Loan Facilities")
providing for loans in an aggregate principal amount of up to approximately $375
million. The New Revolving Credit Facility will be used for working capital and
general corporate purposes, including acquisitions.With limited exceptions, the
obligations of the Borrowers under the New Bank Credit Facility are secured by
(i) a pledge of all of the capital stock of domestic subsidiaries of the
Company, (ii) a pledge of 65% of the stock of the foreign subsidiaries of the
Company and (iii) a first priority security interest in, and mortgages on,
substantially all of the assets of Terex and its domestic subsidiaries. The New
Bank Credit Facility contains covenants limiting the Borrowers' activities,
including, without limitation, limitations on dividends and other payments,
liens, investments, incurrence of indebtedness, mergers and asset sales, related
party transactions and capital expenditures. The New Bank Credit Facility also
contains certain financial and operating covenants, including a maximum leverage
ratio, a minimum interest coverage ratio and a minimum fixed charge coverage
ratio.
<PAGE>
13
Pursuant to the Term Loan Facilities, the Borrowers have borrowed (i) $175.0 in
aggregate principal amount pursuant to a Term Loan A due March 2004 (the "Term A
Loan") and (ii) $200.0 in aggregate principal amount pursuant to a Term Loan B
due March 2005 (the "Term B Loan"). The outstanding principal amount of the Term
A Loan currently bears interest, at the applicable Borrower's option, at an
all-in drawn cost of 2.00% per annum in excess of the adjusted eurodollar rate
or, with respect to U.S. dollar denominated alternate based rate loans, at n
all-in drawn cost of 1.00% per annum in excess of the prime rate. The
outstanding principal amount of the Term B Loan currently bears interest, at the
Company's option, at a rate of 2.50% per annum in excess of the adjusted
eurodollar rate or, with respect to U.S. Dollar denominated alternate base rate
loans, 1.50% in excess of the prime rate. The Term A Loan amortizes on a
quarterly basis, in the annual percentages of 0%, 16%, 16%, 21%, 21% and 26%,
respectively, during the six-year term of the loan. The Term B Loan amortizes in
an annual percentage of 1% during each of the first six years of the term of the
loan and 94% in the seventh year of the term of the loan. The Term A Loan and
Term B Loan are subject to mandatory prepayment in certain circumstances and are
voluntarily prepayable without payment of a premium (subject to reimbursement of
the lenders' costs in case of prepayment of eurodollar loans other than on the
last day of an interest period.)
Pursuant to the New Revolving Credit Facility, the Borrowers have available an
aggregate amount of up to $125.0. The outstanding principal amount of loans
under the New Revolving Credit Facility bears interest, at the applicable
Borrower's option, at an all-in drawn cost of 2.00% per annum in excess of the
adjusted eurocurrency rate or, with respect to U.S. dollar denominated alternate
base rate loans, at an all-in drawn cost of 1.00% per annum in excess of the
prime rate. The New Revolving Credit Facility will terminate on the sixth
anniversary thereof.
Also as discussed in Note B of the notes to the interim condensed consolidated
financial statements, on March 31, 1998 the Company acquired O&K Mining GmbH for
a net aggregate consideration of approximately $168. Concurrently with the O&K
Mining acquisition, the Company issued $150.0 of 8-7/8% Senior Subordinated
Notes due 2008.
As of March 31, 1998, the Company's balance outstanding under the New Credit
Facility totaled $8.4, letters of credit issued under the New Credit
Facility totaled $10.6, and the additional amount the Company could have
borrowed under the New Credit Facility was $106.0.
The Company's businesses are working capital intensive and require funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities as well as
financing of receivables from customers and dealers. The Company has significant
debt service requirements including semi-annual interest payments on the New
Senior Subordinated Notes and monthly interest payments on the New Credit
Facility. Management believes that cash generated from operations, together with
the New Credit Facility, provides the Company adequate liquidity to meet the
Company's operating and debt service requirements.
CONTINGENCIES AND UNCERTAINTIES
The Internal Revenue Service (the "IRS") is currently examining the Company's
Federal tax returns for the years 1987 through 1989. In December 1994, the
Company received an examination report from the IRS proposing a substantial tax
deficiency. The examination report raised a variety of issues, including the
Company's substantiation for certain deductions taken during this period, the
Company's utilization of certain net operating loss carryovers ("NOLs") and the
availability of such NOLs to offset future taxable income. The Company filed an
administrative appeal to the examination report in April 1995. In June 1996, the
Company was advised that the matter was being referred back to the IRS. The
audit division of the IRS is currently reviewing information provided by the
Company. The ultimate outcome of this matter is subject to the resolution of
significant legal and factual issues. Given the stage of the audit, and the
number and complexity of the legal and administrative proceedings involved in
reaching a resolution of this matter, it is unlikely that the ultimate outcome,
if unfavorable to the Company, will be determined for at least several years. If
the IRS were to prevail on all the issues raised, the amount of the tax
assessment would be approximately $56.0 plus penalties of approximately $12.8
and interest through March 31, 1998 of approximately $98.6. The penalties
asserted by the IRS are calculated as 20% of the amount of the tax assessed for
fiscal year 1987 and 25% of the tax assessed for each of fiscal years 1988 and
1989. Interest on the amount of tax assessed and penalties is currently accruing
at a rate of 10% per annum. The applicable annual rate of interest has
historically varied from 7% to 12%.
If the Company were required to pay a significant portion of the assessment with
related interest and penalties, such payment might exceed the Company's
resources. In such event, the viability of the Company would be placed in
jeopardy, and it is uncertain that the Company could, through financing or
otherwise, obtain the funds required to pay such assessment, interest, and
applicable penalties. Management believes, however, that the Company will be
able to provide adequate documentation for a substantial portion of the
<PAGE>
14
deductions questioned by the IRS and that there is substantial support for the
Company's past and future utilization of the NOLs. Based upon consultation with
its tax advisors, management believes that the Company's position will prevail
on the most significant issues. Accordingly, management believes that the
outcome of the examination will not have a material adverse effect on its
financial condition or results of operations, but may result in some reduction
in the amount of the NOLs available to the Company. No additional accruals have
been made for any amounts which might be due as a result of this matter because
the possible loss ranges from zero to $56.0 plus interest and penalties, and the
ultimate outcome cannot be determined or estimated at this time. No reserves are
being expensed to cover the potential liability.
In March 1994, the Securities and Exchange Commission (the "Commission")
initiated a private investigation, which included the Company and certain of its
affiliates, to determine whether violations of certain aspects of the Federal
securities laws had occurred. To date, the inquiry of the Commission has
primarily focused on accounting treatment and reporting matters relating to
various transactions which took place in the late 1980s and early 1990s. The
Company is cooperating with the Commission in its investigation. The Company has
recently been advised by the Staff of the Commission that it has been authorized
by the Commission to institute an administrative proceeding against the Company
and certain of its present and former officers and affiliates. Based on
information currently available to the Company, it is the Company's
understanding tat if a proceeding were to be brought, the Staff intends to seek
an order to cease and desist violations of the Federal securities lase (without
monetary penalties) based on claims relating to accounting treatment and
reporting maters with respect to the Company's financial statements for the
years ended December 31, 1990 and 1991, as well as the Company's Proxy Statment
covering the 1992 fiscal year. It is not possible at this time to determine the
outcome of the Commission's investigation.
The Company is subject to a number of contingencies and uncertainties including
product liability claims, self-insurance obligations, tax examinations and
guarantees. Many of the exposures are unasserted or proceedings are at a
preliminary stage, and it is not presently possible to estimate the amount or
timing of any cost to the Company. However, management does not believe that
these contingencies and uncertainties will, in the aggregate, have a material
effect on the Company. When it is probable that a loss has been incurred and
possible to make reasonable estimates of the Company's liability with respect to
such matters, a provision is recorded for the amount of such estimate or for the
minimum amount of a range of estimates when it is not possible to estimate the
amount within the range that is most likely to occur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of federal,
state, local and foreign environmental laws and regulations, including the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
that (i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal
practices for hazardous and nonhazardous wastes, and (ii) impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances. Compliance with
such laws and regulations has, and will, require expenditures by the Company on
a continuing basis. The Company does not expect that these expenditures will
have a material adverse effect on its financial condition or results of
operations.
<PAGE>
15
PART II OTHER INFORMATION
(Dollar amounts are in millions, unless otherwise noted.)
Item 1. Legal Proceedings
For information concerning other contingencies see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Contingencies and
Uncertainties."
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Recent Developments
See Note B of the Notes to the Condensed Consolidated Financial Statement in
Part I for information on the acquisition of O&K Mining GmbH and refinancing
activities.
Forward Looking Information
Certain information in this Quarterly Report includes forward-looking statements
regarding future events or the future financial performance of the Company that
involve certain contingencies and uncertainties, including those discussed above
in the section entitled Contingencies and Uncertainities. In addition, when
included in the Quarterly Report or in documents incorporated herein by
reference, the words "may," "expects," "intends," "anticipates," "plans,"
"projects," "estimates," and the negatives thereof and analogous or similar
expressions are intended to identify forward-looking statements. Such statements
are inherenctly subject to a variety of risks and uncertainities that could
cause actual results to differ materially from those reflected in such
forward-looking statements. Such risks and uncertainties, many of which are
beyond the Company's control, include, among others, the sensitivity of
construction and mining activity to interest rates, government spending and
general economic conditions; the success of the integration of acquired
businesses; the retention of key management; foreign currency fluctuations;
pricing, product initiatives and other actions taken by competitors; the effects
of changes in laws and regulations; continued use of net operating loss
carryovers and other factors. Actual events or the actual future results of the
Company may differ materially from any forward-looking statement due to these
and other risks, uncertainties and significant factors. The forward-looking
statements contained herein speak only as of the date of this Quarterly Report
and the forward-looking statements contained in documents incorporated herein by
reference speak only as of the date of the respective documents. The Compnay
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statement contained or incorporated
by reference in the Quarterly Report to reflect any change in the Company's
expectations with regard thereto or any change inevents, conditions or
circumstances on which any such statement is based.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of this
Form 10-Q:
Exhibit No.
11.1 Computation of earnings per share
27 Financial data schedule
(b) Reports on Form 8-K.
A report on Form 8-K dated March 31, 1998 was filed on April
7, 1998 reporting the Company's completion of the purchase of
all outstanding shares of O&K Mining GmbH.
<PAGE>
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date: May 15, 1998 /s/ Joseph F. Apuzzo
Joseph F. Apuzzo
Vice President Finance and Controller
(Principal Accounting Officer)
<PAGE>
17
EXHIBIT INDEX
Exhibit No.
Exhibit 11.1 Computation of Earnings per Share
Exhibit 27 Financial Data Schedule
<PAGE>
18
EXHIBIT 11.1
(Page 1 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(in millions except per share amounts)
Three Months
Ended March 31,
-----------------------
1998 1997
----------- -----------
BASIC:
Income before extraordinary items.......................$ 14.4 $ 3.9
Less: Accretion of Preferred Stock................. --- (0.4)
----------- -----------
Income before extraordinary items applicable
to common stock....................................... 14.4 3.5
Extraordinary loss on retirement of debt............ (38.3) ---
----------- -----------
Net income (loss) applicable to common stock............$ (23.9) $ 3.5
=========== ===========
Basic shares outstanding................................ 20.6 13.3
=========== ===========
Basic income (loss) per common share
Income before extraordinary items...................$ 0.70 $ 0.26
Extraordinary loss on retirement of debt......... (1.86) ---
----------- -----------
Net income (loss)...................................$ (1.16) $ 0.26
=========== ===========
<PAGE>
19
EXHIBIT 11.1
(Page 2 of 2)
TEREX CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(in millions except per share amounts)
Three Months
Ended March 31,
---------------------
1998 1997
---------- ---------
DILUTED:
Income before extraordinary items.........................$ 14.4 $ 3.9
Less: Accretion of Preferred Stock.................. --- (0.4)
---------- ---------
Income before extraordinary items applicable
to common stock......................................... 14.4 3.5
Extraordinary loss on retirement of debt............. (38.3) ---
---------- ---------
Income (loss) applicable to common stock.................. (23.9) 3.5
Add: Accretion of Preferred Stock assumed
converted at beginning of period....................... --- ---(a)
---------- ---------
Net income (loss) applicable to common stock..............$ (23.9) $ 3.5
========== =========
Weighted average shares outstanding during the period..... 20.6 13.3
Assumed exercise of warrants.............................. 0.2 0.6
Assumed conversion of Preferred Stock..................... --- ---(a)
Assumed exercise of stock options......................... 0.8 0.5
Assumed exercise of equity rights......................... 0.6 ---
---------- ---------
Diluted shares outstanding................................ 22.2 14.4
========== =========
Diluted income (loss) per common share:
Income before extraordinary items....................$ 0.65 $ 0.24
Extraordinary loss on retirement of debt........... (1.73) ---
----------- ---------
Net income (loss)....................................$ (1.08) $ 0.24
=========== =========
(a) Excluded from the computation because the effect is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 58,500
<SECURITIES> 0
<RECEIVABLES> 216,800
<ALLOWANCES> 4,300
<INVENTORY> 380,900
<CURRENT-ASSETS> 675,600
<PP&E> 111,900
<DEPRECIATION> 35,200
<TOTAL-ASSETS> 932,100
<CURRENT-LIABILITIES> 325,500
<BONDS> 554,200
0
0
<COMMON> 200
<OTHER-SE> 27,800
<TOTAL-LIABILITY-AND-EQUITY> 932,100
<SALES> 260,600
<TOTAL-REVENUES> 260,600
<CGS> 215,800
<TOTAL-COSTS> 215,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,800
<INCOME-PRETAX> 14,600
<INCOME-TAX> 200
<INCOME-CONTINUING> 14,400
<DISCONTINUED> 0
<EXTRAORDINARY> (38,300)
<CHANGES> 0
<NET-INCOME> (23,900)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.08)
</TABLE>
